William Gray, III v. Hearst Communications, Inc. , 444 F. App'x 698 ( 2011 )


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  •                               UNPUBLISHED
    UNITED STATES COURT OF APPEALS
    FOR THE FOURTH CIRCUIT
    No. 10-1302
    WILLIAM   B.  GRAY,   III,  d/b/a   Greenwood  Clinic  of
    Chiropractic, individually and for the benefit and on
    behalf of all others similarly situated; B AND K SERVICES
    INCORPORATED,
    Plaintiffs – Appellees,
    and
    STEVE WALL AND ASSOCIATES LLC, f/k/a SC Insurance Services
    LLC, d/b/a Morgan and Associates Incorporated; UNLIMITED
    SERVICES OF GREENWOOD INCORPORATED, individually and for
    the benefit and on behalf of all others similarly situated,
    Plaintiffs,
    v.
    HEARST   COMMUNICATIONS,   INCORPORATED;    WHITE   DIRECTORY
    HOLDINGS CAROLINA INCORPORATED,
    Defendants – Appellants,
    and
    TALKING PHONE BOOK; SAIA HOLDINGS LLC; SAIA PUBLISHING
    COMPANY;   MICHAEL   BROWN;  WHITE   DIRECTORY HOLDINGS
    PENNSYLVANIA INCORPORATED; WHITE DIRECTORY OF CAROLINA,
    INCORPORATED,
    Defendants.
    Appeal from the United States District Court for the District of
    South Carolina, at Anderson.     G. Ross Anderson, Jr., Senior
    District Judge. (8:08-cv-01833-GRA)
    Argued:   December 7, 2010             Decided:   August 25, 2011
    Before WILKINSON and SHEDD, Circuit Judges, and Norman K. MOON,
    Senior United States District Judge for the Western District of
    Virginia, sitting by designation.
    Affirmed by unpublished opinion. Judge Shedd wrote the majority
    opinion, in which Senior Judge Moon joined.     Judge Wilkinson
    wrote a dissenting opinion.
    ARGUED: Alan Mansfield, GREENBERG TRAURIG, LLP, New York, New
    York, for Appellants.      Daniel S. Haltiwanger, RICHARDSON,
    PATRICK, WESTBROOK & BRICKMAN, LLC, Barnwell, South Carolina,
    for Appellees.   ON BRIEF: Stephen L. Saxl, William A. Wargo,
    GREENBERG TRAURIG, LLP, New York, New York; R. Bruce Shaw,
    Stephen G. Morrison, NELSON MULLINS RILEY AND SCARBOROUGH, LLP,
    Columbia, South Carolina, for Appellants.   Terry E. Richardson,
    Jr., Christopher J. Moore, RICHARDSON, PATRICK, WESTBROOK &
    BRICKMAN, LLC, Barnwell, South Carolina; Jon E. Newlon, MCCRAVY,
    NEWLON & STURKIE LAW FIRM, P.A., Greenwood, South Carolina, for
    Appellees.
    Unpublished opinions are not binding precedent in this circuit.
    2
    SHEDD, Circuit Judge:
    Hearst       Communications,         Inc.        and   White     Directory
    Holdings Carolina, LLC (collectively “White Directory”) appeal
    the district court’s order conditionally certifying class action
    claims     against    them      for   breach     of    contract,        breach     of   the
    implied covenant of good faith and fair dealing, and unfair and
    deceptive trade practices. For the following reasons, we affirm
    the certification order.
    These claims, brought by William B. Gray, III, d/b/a
    Greenwood Clinic of Chiropractic, and B & K Services, Inc., on
    behalf of themselves and other similarly situated advertisers
    (collectively “Gray”), stem from Gray’s purchase of advertising
    in   The    Talking       Phone    Book   telephone          directories     which      are
    published and distributed by White Directory in various markets
    throughout        South     Carolina.      Gray        alleges      White     Directory
    solicited the class members to enter into advertising contracts
    through     the    use     of     concerted    sales         efforts    touting     White
    Directory’s       superior        distribution        coverage,     but     that    White
    Directory     knowingly         misrepresented         its     actual     distribution,
    never made a full distribution as promised, and intentionally
    sought to conceal this deception.
    Gray initially asserted seven causes of action, but
    eventually sought class certification on only three theories of
    relief: breach of contract, breach of the implied covenant of
    3
    good    faith   and   fair       dealing,       and      unfair    and    deceptive      trade
    practices.      After        a        hearing       on     the     motion        for     class
    certification, the district court entered an order conditionally
    certifying all three class claims. White Directory timely filed
    a   petition    for     review.         We    review       the     class      certification
    decision for abuse of discretion. Brown v. Nucor Corp., 
    576 F.3d 149
    , 152 (4th Cir. 2009).
    Although     White          Directory        raises     several      issues       on
    appeal, the primary issue is whether the district court erred in
    finding that Gray’s proposed class action claims satisfy the
    commonality     and    predominance          requirements          of    Federal       Rule    of
    Civil    Procedure     23.       In    granting       certification,           the   district
    court determined that each of Gray’s claims ultimately hinges on
    whether he can establish a distribution obligation, which is a
    question that the district court found is capable of classwide
    proof and predominates over any individual issues.                            We agree.
    Federal     Rule      of     Civil      Procedure      23     establishes         the
    standard for class certification, and a proposed class must meet
    the requirements of both Rule 23(a) and Rule 23(b). First, a
    class     action      “must       comply        with       the     four       prerequisites
    established     in    Rule       23(a):      (1)      numerosity         of   parties;        (2)
    commonality     of    factual          and   legal       issues;    (3)       typicality      of
    claims and defenses of class representatives; and (4) adequacy
    of representation.” Gunnells v. Healthplan Services, Inc., 348
    
    4 F.3d 417
    , 423 (4th Cir. 2003) (quoting Fed. R. Civ. P. 23(a)).
    Second, the class action must also fall within one of the three
    categories    established         in     Rule      23(b).   
    Id. Here, Gray
      seeks
    certification of his claims under Rule 23(b)(3), which requires
    proof that “the questions of law or fact common to class members
    predominate        over     any    questions         affecting        only     individual
    members, and that a class action is superior to other available
    methods      for      fairly         and        efficiently        adjudicating          the
    controversy.”       Fed.    R.    Civ.     P.     23(b)(3).    A   plaintiff       seeking
    class certification bears the burden of proving the proposed
    class complies with the requirements of Rule 23. Windham v. Am.
    Brands, Inc., 
    565 F.2d 59
    , 65 n.6 (4th Cir. 1977) (en banc).
    Commonality          is       generally        established          when     a
    plaintiff’s claims have “questions of law or fact common to the
    class.” Fed. R. Civ. P. 23(a)(2). As the Supreme Court recently
    clarified, in order to satisfy the commonality requirement, the
    plaintiff     must        “demonstrate        that    the     class      members      ‘have
    suffered the same injury,’” Wal-Mart Stores, Inc., v. Dukes, 
    131 S. Ct. 2541
    , 2551 (2011) (quoting Gen. Tel. Co. of Southwest v.
    Falcon, 
    457 U.S. 147
    , 156 (1982)), and that the claim “depend[s]
    upon   a    common        contention”       that     “is    capable       of    classwide
    resolution    –    which     means     that       determination     of   its     truth   or
    falsity will resolve an issue that is central to the validity of
    each one of the claims in one stroke,” 
    id. 5 “In
    a class action brought under Rule 23(b)(3), the
    commonality requirement of Rule 23(a)(2) is subsumed under, or
    superseded by, the more stringent Rule 23(b)(3) requirement that
    questions common to the class predominate over other questions.”
    Lienhart v. Dryvit Sys., Inc., 
    255 F.3d 138
    , 146 n.4 (4th Cir.
    2001) (quoting Amchem Prods., Inc. v. Windsor, 
    521 U.S. 591
    , 609
    (1997)) (internal quotation marks omitted). The Rule 23(b)(3)
    predominance       requirement        is     “far    more      demanding”      than     Rule
    23(a)(2)’s     commonality            requirement,         and      the     "predominance
    inquiry tests whether proposed classes are sufficiently cohesive
    to warrant adjudication by representation.” Amchem 
    Prods., 521 U.S. at 623
    . In other words, to satisfy Rule 23(b)(3), “[c]ommon
    questions    must    predominate           over    any    questions        affecting     only
    individual    members;    .       .   .    [such     that]     a    class    action    would
    achieve      economies       of       time,         effort,        and      expense,     and
    promote . . .      uniformity         of    decision      as   to    persons     similarly
    situated.” 
    Id. at 615
    (internal quotation marks omitted).
    White     Directory           initially      argued      the     contracts    at
    issue did not include an express distribution term and therefore
    contained     no    contractual            obligation      regarding        distribution.
    However,    during    oral    argument,           White      Directory       conceded    the
    contracts    do    contain    a       distribution        obligation,         and   further
    conceded the distribution plan or scheme is the same for all
    6
    advertisers      in     any   given     coverage        area.   Thus,     there     is   no
    dispute that a uniform distribution obligation exists.
    Having     conceded       the        existence        of     a     uniform
    distribution obligation, White Directory’s remaining objections
    to class certification carry little weight. White Directory’s
    insistence       that    there    can    be       no    proof   of    a     distribution
    obligation absent a distribution number, which the contracts do
    not contain, is simply a variation of its now-rejected argument
    that the contracts contain no distribution obligation at all.
    Likewise, because White Directory concedes it has a distribution
    obligation under the contract, the contracts’ integration clause
    and North Carolina’s parol evidence rule 1 do not bar the use of
    extrinsic evidence to determine what that obligation is. See,
    e.g., Edwards v. Hill, 
    703 S.E.2d 452
    , 456 (N.C. Ct. App. 2010)
    (noting extrinsic evidence may be used to explain the terms and
    the parties’ expressed intentions in an integrated agreement).
    In   fact,     during    oral    argument         White   Directory       described      its
    distribution      requirement         under       the   contracts    as     its    “normal
    course    of     distributing     books.”          Evidence     of   such       course   of
    dealings and course of performance is permissible to explain or
    supplement contractual terms. See Phelps v. Spivey, 
    486 S.E.2d 1
           The parties agree that North Carolina law applies to
    Gray’s breach of contract claim pursuant to the choice of law
    provision in the contracts.
    7
    226, 228-29 (N.C. Ct. App. 1997) (citing N.C. Gen. Stat. § 25-2-
    202).
    Finally, White Directory misses the mark by focusing
    on the individualized nature of the different representations
    that may (or may not) have been made in the negotiations between
    each advertiser and White Directory. As we already discussed:
    White Directory concedes (and common sense dictates) that the
    normal   course        of   distribution       is    the   same     for   all    directory
    advertisers       in    a    given    market.        Accordingly,         the   level      of
    distribution does not vary based on what advertisers pay.
    It     is       this     uniform        distribution      practice        which
    distinguishes Wal-Mart. In Wal-Mart, the putative class sought
    to prove Wal-Mart had a general policy of discrimination that
    guided     millions          of      allegedly        discriminatory            employment
    decisions. However, in Wal-Mart there was a question of whether
    a general policy concerning such decisions existed and whether
    that    general    policy         applied    to     all    hiring    decisions.       Here,
    unlike Wal-Mart, there is no dispute that a uniform policy (or
    obligation) exists or that such a uniform policy applies to all
    plaintiffs;      White      Directory       concedes       both.    Moreover,        to   the
    extent   White     Directory        argues     its    sales     representatives           made
    representations         regarding     distribution         that     differed     from     the
    distribution      obligation         in     the     contract,      evidence     of    those
    representations – unlike evidence of White Directory’s course of
    8
    dealings    concerning      distribution            -     would       be     barred    by     the
    contract’s integration clause.
    Thus, although White Directory’s sales representatives
    may have had broad discretion to make different sales pitches to
    different      advertisers,      they    could          not    make        binding    promises
    regarding      distribution      obligations            which     differed          from     that
    reflected in the contract. And, even if the parties may have had
    different      expectations      regarding          other      variables        (e.g.       size,
    color, location, price, etc.), the common predominating question
    focuses on whether White Directory fulfilled that distribution
    obligation.
    To summarize, we think the district court was correct:
    the   common    question    regarding             White    Directory’s         distribution
    obligation predominates over any individual issues because the
    putative class members all assert injury from the same action
    (i.e.   failure     by     White    Directory             to     follow       its     standard
    distribution      practice),       and    determination               of     whether       White
    Directory   breached       its   standard           distribution            obligation       will
    resolve in one stroke an issue that is central to the validity
    of the class members’ breach of contract claims. In addition,
    the   district     court    correctly         found        that       Gray    may     rely    on
    extrinsic      evidence    to    establish          what       that    normal       course     of
    distribution      is.     Because       the        same       distribution          obligation
    applies to every advertiser within the same geographic market
    9
    area,    evidence   of   White    Directory’s   distribution     obligation
    would apply to all such advertisers. Whether White Directory
    reasonably met that obligation becomes a common question of fact
    for the jury to decide. 2
    Accordingly,     we     affirm      the   district      court’s
    certification of the class. 3
    AFFIRMED
    2
    We have reviewed Gray’s breach of a good faith and fair
    dealing and unfair trade practices claim and believe he
    satisfied his burden of establishing commonality as to those two
    claims. Like the breach of contract claim, both of the remaining
    claims center on the distribution obligation.
    3
    White Directory also argues that the district court abused
    its discretion by (a) certifying Gray’s class on a conditional
    basis, (b) failing to conduct a rigorous analysis of the record,
    and (c) finding the class satisfied the superiority, typicality,
    and adequacy requirements of Rule 23(b)(3). We have reviewed the
    record and find no abuse of discretion by the district court on
    these matters.
    10
    WILKINSON, Circuit Judge, dissenting:
    This     case     concerns    whether        advertisers      pursuing      a
    breach of contract class action met the commonality requirement
    of Rule 23(b)(3) for class certification, that “questions of law
    or fact common to class members predominate over any questions
    affecting only individual members.”                    Fed. R. Civ. P. 23(b)(3)
    (emphasis added).           Plaintiffs contend that this standard was
    satisfied,    but    an     irresolvable       paradox    lies    at    the    heart    of
    their position.       On the one hand, plaintiffs insist that there
    is commonality due to a uniform distribution obligation in the
    contracts.      See ante, at 8.          Yet on the other, they nonetheless
    concede     that    extrinsic      evidence,      which        inevitably      will     be
    individualized, is permissible and necessary to establish what
    the normal course of distribution even was.                       See ante, at 9.
    Because   the      integrated      contracts      in     fact    lack    any    uniform
    distribution term to supply the necessary commonality of law or
    fact, I respectfully dissent.
    I.
    There     is     no   uniform      distribution        policy      in     the
    contracts for the defendants to have allegedly breached.                               The
    contracts    would    be     the   logical      place     to    look    for    such     an
    obligation and if it were there, the certification could readily
    be affirmed.       I have looked high and low for such a distribution
    11
    term,    but       cannot       find    one    for   the    simple    reason      that   the
    contracts in this breach of contract action do not have one.                              It
    is the contracts that would have supplied a ready commonality
    for something that now is anybody’s guess.
    The    majority’s         conclusion        depends    on    its   assertion
    that     “during       oral       argument,      White      Directory        conceded    the
    contracts do contain a distribution obligation.”                              Ante, at 6.
    But concessions at oral argument, if made, are always to be
    taken cautiously and there remains no provision in the contract
    in which any distribution obligation is embodied.
    So when and how was what to be distributed to whom?
    Plaintiffs         fail    to    cite    any    language      from    the    contracts    to
    demonstrate that any such distribution obligation exists within
    them.        They don’t do so because they can’t -- such language is
    nowhere to be found in the contracts themselves.
    II.
    To      establish          a     distribution          requirement        and
    demonstrate          its        breach        therefore       requires        resort      to
    individualized         extrinsic        evidence     of     exactly    the    kind     deemed
    insufficient to support class certification by the Supreme Court
    in Wal-Mart under the even lower threshold of Rule 23(a)(2).
    See Fed. R. Civ. P. 23(a)(2) (requiring commonality of questions
    of     law    or     fact,      but     not    requiring      predominance        of    those
    12
    questions as in Rule 23(b)(3)); Wal-Mart Stores, Inc. v. Dukes,
    
    131 S. Ct. 2541
    (2011).                In Wal-Mart, the Court was troubled by
    the lack of proof of a uniform discrimination policy.                                     Likewise,
    in   Hearst,     there    is     no     distribution              term   in    the    integrated
    contracts speaking to what appellees contend is the common issue
    demonstrating       breach       of    contract.               Without    a    contract       term
    directly addressing the mechanics of distribution or the exact
    number of phone books to be distributed, plaintiffs must turn to
    individualized        extrinsic         evidence             to     establish        an     implied
    distribution term.
    A.
    To      compensate              for        the        contract’s        silence      on
    distribution and construct what might pass for a distribution
    policy,    plaintiffs        invite          the       district       court    to     resort    to
    extrinsic      evidence        regarding           White       Directory’s       distribution
    practices.       See ante, at 9.                   But by focusing on distribution
    practices, and not on the representations made to clients with
    respect to their individual contracts, plaintiffs are the ones
    that      “miss[]     the      mark.”             Ante,      at     8.    Any       practice     of
    distribution      still     begs       the        critical         question     of    what    that
    distribution number was or whether the clients had any uniform
    expectation      of      what     it        would        be.          Absent     an        explicit
    distribution      term      in        the     contracts,            uniformity        in    actual
    13
    distribution tells us nothing about the reliance interests of
    individual clients that could form the basis of a contractual
    breach.     This is especially true if the expectations and intent
    of each client varied as a product of the individualized sales
    representations that client received.
    With respect, the majority is mistaken in its attempt
    to    distinguish          Wal-Mart      on    the      basis       of     White    Directory’s
    “uniform    distribution            practice.”              Ante,   at     8.      The   relevant
    policy     is    not       White    Directory’s         distribution            practices,      but
    rather     its       sales    policy,      which       sheds       light    on     the   reliance
    interests of the parties and whether they were uniform.                                    And in
    this respect, Wal-Mart is squarely on point.                               Wal-Mart’s policy
    that granted broad discretion to local supervisors over pay and
    promotion        (in         conjunction         with        its     written        policy      of
    nondiscrimination)            was    fatal     to      the    plaintiffs’          assertion     of
    commonality.          As in Wal-Mart, White Directory’s sales policy was
    one   of   broad          discretion.          Specifically,             salesmen    had     broad
    discretion       to       craft    their      sales     pitch       to    the    needs     of   the
    specific client.
    As    a    result,       there        was     substantial        variation       in
    written and oral sales pitches.                        Not all members of the class
    saw the same sales aids or the same salespersons nor were they
    subject         to     the        same     representations               with      respect       to
    distribution.             Evidence of the parties’ intent and expectations
    14
    with       respect      to      distribution     will     therefore     necessarily       be
    individualized            and      anecdotal,    just    like    the   evidence     deemed
    insufficient in Wal-Mart.                  Thus, even if the actual distribution
    of   phone        books      was    uniform,    the     lack    of   uniformity     in    the
    representations           to       class   members    indicates      that   there    is    no
    “common answer” to the critical question of the intent of the
    parties to each contract.                  See 
    Wal-Mart, 131 S. Ct. at 2552
    .
    B.
    The extrinsic evidence and the individualized nature
    of the claims deriving from it forecast all sorts of difficult
    problems         down   the      road.      Plaintiffs     would     need   to   introduce
    individualized evidence, of the kind rejected in Wal-Mart, to
    prove      a     specific       numerical    distribution       term   --   specifically
    evidence of what sales aids were used or what sales pitches were
    given       at     individual         meetings. *        Individualized      evidentiary
    hearings will be necessary to prove both injury and any damages
    that may flow from a breach of contract.                        In contrast, the class
    action device as applied to this variety of circumstances may
    *
    It is worth emphasizing that even appellees have never
    identified a uniform distribution policy within the contracts as
    the basis for the breach. Rather, their theory of the case has
    always rested on extrinsic evidence of the representations about
    distribution   made  to   clients  in   sales  aids   and  sales
    conversations.
    15
    force appellants into a one-size-fits-all defense, compromising
    what is and should have been their legitimate right to make a
    defense tailored to individual circumstances.                        In this case,
    therefore, the class action method hardly seems “superior to
    other available methods for fairly and efficiently adjudicating
    the controversy.”        Fed. R. Civ. P. 23(b)(3).
    III.
    In   the   end,   we   are     still   left    with    the    question,
    unanswered by the contract, of what the uniform distribution
    policy was.        Plaintiffs want to have their cake and eat it too.
    They allege commonality for class certification on the basis of
    an alleged uniform distribution obligation, and yet expect use
    of extrinsic evidence to demonstrate that such an obligation
    existed and was breached.            But just as the absence of a uniform
    discrimination policy was fatal to certification in Wal-Mart, so
    too is the absence of uniform representations with respect to
    distribution fatal to the certification effort here.                        Again, it
    is the representations that matter, because it is the violation
    of   those    representations        that    alone   could    lead    to    a   viable
    breach   of    contract    claim.       Accordingly,        there    is    no   way   to
    “resolve an issue that is central to the validity of each one of
    the claims in one stroke.”             
    Wal-Mart, 131 S. Ct. at 2545
    .                  I
    16
    would therefore reverse the class certification order in this
    case.
    17